What is the point of prosecuting a company? Sometimes they pay fines, that's something. A criminal conviction against a company may keep that company from doing bad things in the future. As a prosecutor, you get to say "this prosecution proves that no company is too big to jail," despite the fact that a company is the exact and literal embodiment of a thing that is too big (and too abstract) to jail. So, there's some stuff.
The point of prosecuting a human is to punish that human for doing bad stuff and deter other humans from doing similar bad stuff in the future, and prosecuting companies doesn't do a great job of that. Prosecuting companies tends to both over-deter and under-deter: "if I commit a crime in my corporate capacity, my company will disappear and I'll be out of a job" doesn't have quite the same sting as "... and I'll go to prison," though it does have exactly the same sting as "if someone else at this company commits a crime in his corporate capacity, my company will disappear and I'll be out of a job."
Is (or was) SAC Capital organized to encourage individual analysts and portfolio managers to get inside information while shielding Steve Cohen from direct knowledge of that information? Meh, I don't know, but man do a lot of people think so.1
Was that kind of what its investors wanted? Even today you can read about how investors are voluntarily fleeing SAC, or planning to, because "[e]ven Cohen's legendary 25 pct annual returns at some point aren't worth the risk," but still: what risk? "At least nine current or former SAC employees have been linked to insider trading while working at the firm, including four who have pleaded guilty to crimes, according to Bloomberg News’s tally." I submit to you that if you don't want to be associated with insider trading, six cases would be enough. If nine isn't enough, ten won't be either. It seems like at least some investors are only going to be dragged away from SAC by force.
And it seems like they will be:
Cohen has discussed an agreement under which his SAC Capital Advisors LP would admit wrongdoing but wouldn’t be prosecuted unless it broke the law again, said the person, who asked not to be named because the talks are private. As part of the deal, known as a deferred prosecution agreement, Cohen would close the Stamford, Connecticut-based firm to outside investors and make it a family office that manages his personal fortune. SAC Capital probably would also pay fine.
If you imagine SAC as interposing two layers of deniability - analyst to Cohen, Cohen to investor - between "provably, knowingly trading on inside information" and "making money off of it" - then what does it say if:
- some analysts go to jail;
- the firm shuts down to outside money, with no individual prosecutions of senior people and fines equal to a single-digit percentage of total assets;
- the firm keeps running Steve Cohen's money; and
- outside investors get all their money back?
I think it says "the system worked." The deniability system, I mean, not the hunt-down-insider-trading system. It does prevent SAC from ever insider trading again, except with its $8bn AUM from Steve Cohen's personal fortune, but as a proof-of-concept of insulating the profits of insider trading from the risk it seems pretty solid. Bloomberg quotes John Coffee saying of the prosecutors: "I don’t think they would regard a criminal prosecution against the company as a victory without a conviction against Cohen," and you could see why they wouldn't.
On the other hand, what if Bloomberg is wrong, and SAC remains open and continues not to cooperate with its own demise? Never mind the insider trading, what does that say about SAC's risk management? When SAC paid $616mm to the SEC in the largest insider trading fine ever, it said "This settlement is a substantial step toward resolving all outstanding regulatory matters and allows the firm to move forward with confidence." That got the feds off its back for two months. That, at least as much as its recent disappointing financial performance, suggests that SAC's ability to predict the future is not what it used to be.
“Steve knows his business model protects him,” says the former SAC analyst. “There’s not a single hedge fund that hasn’t somewhere, sometime, gotten sketchy info. But this is different. You think Steve wants you to have inside information but doesn’t want to know you do. Why do it? Why did A-Rod take steroids? Because it’s worth it.... The payout is huge and you can get swayed. What would you do for, say, 20 percent of $276 million? You do stuff. You fucking do stuff. You can’t be in this job without navigating a gray line constantly.”
Tom Conheeney, SAC’s president, counters that it is “absolutely false” to say that the business model is designed to protect Cohen. “The structure has nothing to do with ‘insulating’ Steve,” he says. “We believe the multi-manager model is the best model to produce attractive, risk-adjusted returns over time.”
Also there is Jon Horvath etc.